Rural carriers protest FCC telephone subsidy reform

A U.S. Federal Communications Commission cap on rural telephone subsidies will cost jobs in rural areas and lead
to higher prices for customers in those areas, a group of rural carriers said.

The FCC's cap on payments to some rural carriers, part of the
agency's efforts to shift the focus of the giant Universal Service Fund (USF) from voice to broadband service,
went into effect on Sunday. Members of the Rural Broadband Alliance, a trade group representing rural carriers,
continue to push for the FCC to change the way it decides which carriers to cap.

Customers of the rural carriers will see new charges on their phone bills because of the caps, said Stephen
Kraskin, the alliance's legal counsel. "Some of our companies have started job cut backs, some have frozen planned
investments and related jobs, some are not filling jobs, and others are cutting back," he said in an email.

The FCC's "unprecedented attack on the consumers of rural telecommunications services threatens now to consign
rural America to second-class broadband that is not comparable to the services that will be available in urban
areas," the group said in a press release.

The caps don't give rural carriers enough money to deliver improved broadband speeds to their customers,
according to the alliance. In some cases, carriers may not be able to pay back broadband loans from the U.S. Rural
Utilities Service, and in other cases carriers will not be able to upgrade their networks for faster broadband,
Kraskin said.

The FCC is using a flawed regression analysis model, "riddled with data errors," to determine high-cost rural
carriers, the group said. The analysis attempts to compare the spending of rural carriers, but will limit
investments made by many rural carriers, Kraskin said. The FCC's analysis has found that expenses of about 100
rural carriers are "excessive" and need to be capped, he said.

"My quarrel with the caps and limitations is that they are not fact-driven and related to the actual cost of
providing network to enable both traditional voice and broadband service," he added. "It does not make much sense
to design changes for universal service limited to voice in today's world, and the entirety of the framework of the
FCC considerations was set forth correctly as the need to change the system to address broadband deployment
needs."

The FCC defended the USF reforms. "The commission's bipartisan reforms bring long overdue fiscal responsibility
and accountability to USF, eliminating inefficiency throughout the program," a spokeswoman said in an email. "These
reforms will require some carriers that are spending much more than their peers to adjust."

The changes will free up money to spend on broadband, she added. The USF reform will spur "significant
investment and job creation," without increasing costs to consumers, she added.

The Rural Broadband Alliance has enlisted some supporters in Congress to fight the FCC order. On Monday, the
three members of Alaska's congressional delegation wrote the FCC and called for the agency to suspend the USF caps.
Alaskan carriers tell the delegation that the USF reform effort "will have lasting negative impacts on the
continued deployment of broadband services to rural Alaska," wrote Senator Mark Begich, a Democrat, Senator Lisa
Murkowski, a Republican, and Representative Don Young, a Republican.

The Rural Broadband Alliance is asking the FCC to work with the industry to "develop a fact-based analysis
addressing the real costs to deploy broadband in rural settings," Kraskin said. Instead of automatically cutting
USF support for carriers, the FCC should instead flag high-cost carriers "and take a closer look at whether any of
the costs incurred by the company were unlawful and not reasonably used and needed to provide universal service,"
he added.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service.
Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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